Legend Holdings Ltd, China's biggest personal computer maker, may have to wait until early next year for a pickup in sales that will help boost its stock price from 52-week lows.
Legend stock, which lost two-thirds of its value in the past year, trades at 24 times next year's earnings. That's well above the average of 14 times for Hang Seng Index stocks, making it expensive for a company that may miss its sales target of 3.7 million computers this year. China's US$10 billion PC market is the third largest.
Further declines are "unavoidable," said Vincent Fong, who counts Legend among the US$1.8 billion he helps manage at Hintful Capital Ltd. "People have been paying a lot of premium for the stock."
Legend, which overtook International Business Machines Corp and Compaq Computer Corp in 1997 to become China's largest seller of personal computers, needs to sell more expensive machines to offset a sales shortfall. That may help profit rise by a third even as the company misses its sales goal by about 11 percent, said Tim Ariowitsch, an analyst at Goldman Sachs Group Inc.
While the company hopes to use its brand name to expand into new products and services beyond the PC market, none of its new offerings can provide revenue comparable to what Legend earns from the computer business. Sales probably won't get a boost until the Christmas and Chinese New Year holiday seasons, analysts said.
Legend formed a partnership with AOL Time Warner Inc, the largest media and Internet company, to provide Web access in China. It also teamed up with Siemens AG, the third-largest mobile phone maker, to offer handheld wireless products in China next year. Those ventures won't contribute much to Legend's earnings for at least two years, some investors said.
"Legend's current valuation can't justify future earnings growth," said Anna Ho, who helps manage US$1.2 billion at Skandia Asset Management Asia Ltd. and doesn't own Legend shares.
"I don't see anything they can do."
Granted, the company said it doesn't plan to revise its sales forecast. The company said after its first-quarter earnings announcement last month it won't revise its sales forecast until October. "We're on track to meet our sales target," said Jenny Lee, a company spokeswoman.
In addition, Legend sales may increase in the second half of this fiscal year as Intel Corp's introduction of a new version of the Pentium4 chip allows it to slide prices by about a tenth, said Kirk Yang, an analyst at Credit Suisse First Boston. Holiday sales could also lift demand.
"We've been looking for about 3.4 million shipments for Legend," said Yang. "The next pickup for the company will be in the period from Christmas to the Chinese New Year," in mid-February.
Even so, if the company maintains its current 30 percent share of the China market, Legend would sell about 2.7 million PCs in the current fiscal year, about a quarter less than its estimate.
China's PC market is expanding, albeit at a slower pace, as global sales drop for the first time since 1985. Demand in China this year will grow to 9 million computers, up 26 percent, compared with a 46 percent jump in 2000, according to International Data Corp.
Local companies such as Legend and Founder Holdings Ltd, the second-largest seller on the mainland with about 10 percent market share, dominate China's computer market. Both companies increased their market shares slightly in the second quarter, while third-ranked IBM lost ground, IDC said.
Still, competition from foreign rivals is intensifying.
Compaq Computer Corp, which this week agreed to be acquired by Hewlett-Packard Co, plans to invest US$100 million in two years to improve distribution. Dell Computer Corp, the largest direct seller of PCs, said it aims to boost its share of the China market tenfold to 40 percent to match its market shares in the US and Europe.
TYPHOON: The storm’s path indicates a high possibility of Krathon making landfall in Pingtung County, depending on when the storm turns north, the CWA said Typhoon Krathon is strengthening and is more likely to make landfall in Taiwan, the Central Weather Administration (CWA) said in a forecast released yesterday afternoon. As of 2pm yesterday, the CWA’s updated sea warning for Krathon showed that the storm was about 430km southeast of Oluanpi (鵝鑾鼻), Taiwan’s southernmost point. It was moving in west-northwest at 9kph, with maximum sustained winds of 119kph and gusts of up to 155kph, CWA data showed. Krathon is expected to move further west before turning north tomorrow, CWA forecaster Wu Wan-hua (伍婉華) said. The CWA’s latest forecast and other countries’ projections of the storm’s path indicate a higher
SLOW-MOVING STORM: The typhoon has started moving north, but at a very slow pace, adding uncertainty to the extent of its impact on the nation Work and classes have been canceled across the nation today because of Typhoon Krathon, with residents in the south advised to brace for winds that could reach force 17 on the Beaufort scale as the Central Weather Administration (CWA) forecast that the storm would make landfall there. Force 17 wind with speeds of 56.1 to 61.2 meters per second, the highest number on the Beaufort scale, rarely occur and could cause serious damage. Krathon could be the second typhoon to land in southwestern Taiwan, following typhoon Elsie in 1996, CWA records showed. As of 8pm yesterday, the typhoon’s center was 180km
TYPHOON DAY: Taitung, Pingtung, Tainan, Chiayi, Hualien and Kaohsiung canceled work and classes today. The storm is to start moving north this afternoon The outer rim of Typhoon Krathon made landfall in Taitung County and the Hengchun Peninsula (恆春半島) at about noon yesterday, the Central Weather Administration (CWA) said, adding that the eye of the storm was expected to hit land tomorrow. The CWA at 2:30pm yesterday issued a land alert for Krathon after issuing a sea alert on Sunday. It also expanded the scope of the sea alert to include waters north of Taiwan Strait, in addition to its south, from the Bashi Channel to the Pratas Islands (Dongsha Islands, 東沙群島). As of 6pm yesterday, the typhoon’s center was 160km south of
STILL DANGEROUS: The typhoon was expected to weaken, but it would still maintain its structure, with high winds and heavy rain, the weather agency said One person had died amid heavy winds and rain brought by Typhoon Krathon, while 70 were injured and two people were unaccounted for, the Central Emergency Operation Center said yesterday, while work and classes have been canceled nationwide today for the second day. The Hualien County Fire Department said that a man in his 70s had fallen to his death at about 11am on Tuesday while trimming a tree at his home in Shoufeng Township (壽豐). Meanwhile, the Yunlin County Fire Department received a report of a person falling into the sea at about 1pm on Tuesday, but had to suspend search-and-rescue
RSS